The Warren Buffett Way Workbook

Chapter 8

The World’s Greatest Investor

Answers to Multiple-Choice Questions

1. C. The methodology for determining the world’s greatest investor rests on two simple variables. One is relative outperformance versus the stock market. The second is long-term duration of returns, as it is not enough to beat the stock market over the short term.

2. B. Michael Mauboussin describes in his book The Success Equation that there is a measure of luck and skill in business, sports, and investing. The only way to distinguish whether results are due to skill or to luck is to examine results over time.

3. D. The stated objective of Warren Buffett’s original partnership was to return at least a 6 percent annual return. Buffett’s own goal was to consistently beat the Dow Jones Industrial Average by 10 percent a year.

4. A. Despite the Dow Jones Industrial Average having five losing years, Warren Buffett’s original fund never had a losing year while in operation.

5. C. The book value of Berkshire Hathaway has grown from $19 per share to $114,214 per share between 1965 and 2012. This is an annual return of 19.7 percent, which is 10.3 percent greater than the 9.4 percent total return for the S&P 500.

6. B. Berkshire Hathaway’s book value per share has posted only two negative years over this 48-year period, or about 4 percent of years.

7. D. All three advantages—behavioral, analytical, and organizational—will stem from a quality investment process. This argument is used to explain why some investors ...